Up to 1,200 Microsoft Advertising employees will be shifting
over to AOL, which will absorb the direct sales of ads across
Microsoft's content sites including MSN in its nine biggest
markets, which includes the US and the UK.

Adtech company AppNexus will expand its role in selling ads
programmatically for Microsoft to 39 markets worldwide.

As part of the deal, Microsoft's Bing will replace Google
Search across AOL's sites.

The blog post appears to signal that not everybody is leaving
Microsoft Advertising just yet. Senior staff including the
company's corporate vice president of advertising and consumer
monetization Rik van der Kooi and corporate vice president of
advertising and online Frank Holland will likely remain to steer
through the transition and to accelerate its ad sales focus over
to Bing.

Microsoft's exit from the display ad business has been a long
time coming. It has slowly been shuttering ad products, while
placing an increased focus on search. Here's why the company
finally decided to essentially pull the plug on display
advertising this week.

A long, slow goodbye

Microsoft's share of the $74 billion global display advertising
market has been eroding over recent years. EMarketer predicts its
share of the sector will decline to 1.2% this year, down from a
1.4% share in 2014 and a
2.1% share in 2013.

And while the global display ad market grew 22.4% last year,
Microsoft's display revenues dropped 15.5% in 2014, according to
eMarketer.

Despite clearly struggling to attract a sizeable chunk of
marketers' online budgets over to its platform, the company had
been pro-active in the trade marketing space. Microsoft often had
a huge presence at advertising trade shows like Dmexco in Germany
and Cannes Lions in France — including at this year's event just
last week where the company showed off its
HoloLens virtual reality technology, and it invited pop band
Walk the Moon to play its well-attended Wednesday night beach
party. In previous years, Microsoft has tried to stand out from
competitors with
bespoke targeting tools and
creative ad formats.

Soon after Microsoft's current CEO Satya Nadella came on board in
2014, he outlined a turnaround strategy to transform the company
from a devices and services business to "the productivity and
platform company for the mobile-first and cloud-first world."

A senior adtech company executive and investor who has previously
been a customer of Microsoft told Business Insider: "I think
they're definitely going to exit the ad business. They've
gradually dismantled their ad sales teams over the past couple of
years."

"Nadella has been vocal about transitioning to a software company
and that largely means how they will spend their R&D — ad
products are not as good an investment as higher margin SaaS
(software as a service) and licenses — and sales focus. With the
massive install base Microsoft has, advertising is incongruous
with their growth opportunities," our source added.

The renewed push on Bing is the big story

Bing is the second biggest
desktop search engine in the US, and grew its share year on
year.BI
Intelligence

But although Microsoft is saying goodbye to display, that
doesn't mean it is writing off online advertising altogether.
Microsoft sees Bing search as an area where it can still make a
big impact.

Indeed, the new 10-year deal means Bing takes over from Google to
power search listings and ads for all AOL owned and operated
properties — including The Huffington Post, TechCrunch, and
AOL.com — from next year, which will add a modest increase to
Microsoft's share of the search market.

In an e-mailed statement to Business Insider in response to a
question about whether Microsoft Advertising will now cease to
exist, a Microsoft spokesperson said: "Today’s news is evidence of Microsoft’s
increased focus on our strengths: in this case, search and search
advertising and building great content and consumer services.
This evolution in our approach to display advertising allows us
to keep this focus, while working with industry leaders to market
our services. For more
information please visit our Blog."

An additional statement from Microsoft, when questioned further
on how the Microsoft Advertising business will now be structured,
said: "Our commitment to advertising remains strong. We believe
these partnerships underscore the importance of advertising to
Microsoft and our developers."

There are several advantages for Microsoft switching focus almost
solely to Bing. There are fewer search operators out there than
display advertising companies (despite the fact that search ads
make up around half of the ads sold online). Microsoft Bing is
the clear number two when it comes to search (Yahoo, in third
place, has a 12.7% share, according to comScore,) whereas it is
leagues behind many other larger players (not
just Google and Facebook – but Twitter, Yahoo, AOL, and
Amazon) when it comes to display advertising reach and
revenue.

Bing can also operate with fewer sales and support staff. Ads on
Bing are largely bought through a self-serve software platform,
while most of Microsoft's display business required legions of
support staff, dealing with insertion orders from agencies and
setting up direct deals with clients.

Our adtech source told us: "Products such as Bing have a
different — and largely self-serve — ad sales model from MSN and
their other properties, which would indicate to me that their
cost of sales is very high because there's not a lot of synergy."

He continued: "It's a multibillion dollar business, and it does
pay for itself right now. Our commitment to Bing is very deep and
therefore critical for us to continue to monetize that business."

One ad tech market observer suggested to Business Insider that
Microsoft's agreement to hand over display ad sales to AOL could
even just be a "sweetener" for the search deal.

Naomi Hands, strategic partnership manager, at mobile marketing
and technology agency Somo, told Business Insider the Bing search
deal with AOL could "move the needle" when it comes to
Microsoft's mobile search revenues.

Hands added: "The deal with Verizon will be key in this as due to
market share of handset distribution in the US they can default
browsers and search engines on mobile devices, moving away from
Google here too. This could help streamline the advertising
opportunities across Microsoft's properties, reducing the
fragmentation and clunkiness of its offering and provide a much
more seamless experience."